Following the decision by the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) to slash the Monetary Policy Rate (MPR) by 100 basis points, Nigerian banks have reduced interest on savings accounts by 0.5 percentage points.
From an initial average of 4.2 percent interest rate on basic savings account the deposit money banks after the new MPR rate reduced it to 3.7 percent per annum.
“Following the recent changes in the MPR, the bank has revised interest rates on some products. The new rates will apply effective Thursday, May 28, 2020,” Access Bank notified its customers by mail while stating that the new interest would be 3.7 percent from its current 4.05 percent.
The trend was the same with two other banks, even though they were yet to send the notification to their customers.
“My bank is slashing interest on savings accounts at almost the same rate as the one you just mentioned, but they are yet to send out the notification,” a retail banker in one of the tier-one lenders said on the condition of anonymity.
According to the World Bank, being able to have access to a transaction account is the first step toward broader financial inclusion, since a transaction account allows people to save money, send and receive payments.
For savings account holders in Nigeria to qualify for the interest on the account, the banks require them not to make up to four withdrawals in a month; else they would have forfeited the interest.
Also, the banks say the interest on the savings account is dependent on the MPR by the central bank.
Outlining the benefits on its Max Yield, a savings account that offers interest rates on a minimum deposit balance, Stanbic IBTC Nigeria says before the rate cut by the CBN that the account holders can enjoy “normal savings rate or 4.2% per annum (subject to CBN-advised MPR).”
To spur lending to the economy, which faces imminent recession on twin pressures of COVID-19 pandemic and low oil prices, the MPC unanimously voted to slash the MPR to 12.5 percent on May 28, 2020.
But the CBN retained the Cash Reserve Ratio (CRR) at 27.5 percent and also left the Liquidity Ratio (LR) at 30 percent, Godwin Emefiele, CBN governor, said during a virtual briefing after the meeting. The apex bank also retained the asymmetric corridor around the MPR at +200/-500 basis points.
Ayodeji Ebo, managing director, Afrinvest Securities Limited, said the impact of the rate cut would be on the decline in the Standing Deposit Facility and Standing Lending Facility, which are tied around the MPR.
“The MPR has proven to be ineffective in the past few years as CBN has applied other policy options to adjust interest rates. We do not expect any adjustment or reaction in the fixed income market as rates are already at rock bottom and will be driven more on liquidity. Also, for lending rate, this has always been sticky downwards, hence will not result to a reduction in lending rates,” Ebo said.
Responding to the recent policies by the central bank, Akpan Ekpo, an ex-director at the Central said getting banks to reduce their lending rate to at least 14 percent is stronger than any stimulus package rolled out by the monetary regulator.
According to Ekpo the reduction of the inter-bank interest rate from 13.5 percent to 12.5 percent by the Monetary Policy Committee does not affect the cost of borrowing for everyday Nigerians.
Meanwhile, industry analysts had argued that Nigeria’s high inflation rate is the key barrier restraining the country from achieving a lower lending rate.
“It really comes down to what I like to call the primary objective of the central bank which is price stability,” Victor Ndukauba, deputy managing director, Afrinvest told BusinessDay in February adding that “if we have single-digit inflation rate,” Nigeria will have lower interest and will be able to bridge, for example, the country’s housing deficit.
Meanwhile, the rate at which the prices of good and service increase in Nigeria (inflation) jumped to 24- month high in April 2020 fueled by the impact of the coronavirus pandemic.
Figures by the National Bureau of Statistics (NBS) put Nigeria’s inflation rate (All items year on change) at 12.34 percent in April from 12.26% recorded in March 2020.
With the current inflation rate, the central bank is far from achieving its target of 6-9 percent.
